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Dividend Growth: Turbo-Charge Your Income by +448%
May 7, 2008
I used to start my search for solid income opportunities by
identifying companies with enormous dividend yields. When I found a
company that delivered a yield of 6%, 8% . . . even 10% or more, I felt like my work was
done.
Sure, I
locked in a solid current income stream, but too many times, I
was leaving money on the table -- a lot of money.
It didn't take me long to learn is that not all current yields
are created equal. Some companies I invested in
would continue to pay the same yield, year in and year out.
While other companies increased their dividend yield each year
-- boosting my income and helping me to appreciate the
importance of rising dividends. And once I discovered the power of
dividend growth, I never looked back..
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For example, let's look at a $10,000 investment in two
different stocks; both paying a current yield of 8%.
In
the first case, Company A continues to pay its 8% yield
throughout the years. In the second case, Company B
steadily grows its dividend yield by 10% each year.
In ten
years, Company B produces +59% more income -- all courtesy of
its dividend growth. In 20 years,
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Company B churns out an amazing +186% more in income. And
after 30 years, Company B will produce
+448% more income than Company A.
Turn $10,000 into $340,000 -- with Dividend Growth
Current yields are always a great place to start looking for
solid income opportunities. But if you want to turbo-charge your
income, keep searching until you find an investment that also
delivers strong annual dividend growth year-in and
year-out. If my hypothetical example didn't
convince you, maybe these real examples will.
Altria (NYSE: MO), formerly named Philip Morris, had a dividend
yield below 1% back in 1988 which might have escaped the notice of some
income investors. But while $10,000 invested in the S&P 500 in
February 1988 grew into a substantial $83,925 by February 2008,
that same $10,000 put into Philip Morris exploded into $347,715.
You can attribute the bulk of that remarkable 34-fold gain to
Philip Morris’ 20-year record of rising dividends.
But that's just the start of the story. Anyone who
bought 200 shares back in February 1988 (then costing $17,350)
would now be collecting $17,922 every year in dividends alone.
That's more than they invested to begin with!
Do you think that 10% annual dividend growth is too
much too ask? Over the last five years, BP Prudhoe Bay (NYSE: BPT)
grew its dividend by an average of +37% a year.
If you bought BPT in 2003, you already would have
received +197% of your purchase price in income by the end of
last year. But it's even better than that - you also would have
received another +417% in share price appreciation.
A
Great Time for Income Investing
If you
read the business headlines, you might not think it’s a great
time for any kind of investing. For the better part of a year,
domestic investors have been singing the blues as they've watched
the U.S. indices languish. The U.S. dollar is in a freefall, and the
domestic economy appears to have
stalled. But these are exactly the conditions when it pays to be
an income investor.
For
one thing, dividend-paying investments have clobbered the
competition, in large part because they fare so much better
during bear markets. Over the vicious three years of 2000, 2001
and 2002, the stocks in the S&P 500 that paid dividends actually
rose 10.4%, while the non-payers sank -33.19%.
| While the average U.S. stock now pays a measly 2.1%
dividend, the story is far different overseas. As
you can see in my chart,
stocks in
almost every other country around the world offer
significantly higher yields.
And these are just the averages.
There are plenty of 8%, 10% -- and even 12% yield
opportunities overseas. International companies know
that paying a higher dividend yield is one sure way to
attract the foreign |
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investment they need to support their growing
businesses.
And international companies are growing. Developed
countries, like the U.S., are comparatively slow
growers, even in the best of times.
But
as you can see in my chart, there are many other countries around
the
world with growth rates many times that of the U.S. Most
of these countries are at far earlier
stages on the
economic development path and should continue to deliver much
higher growth rates than the U.S. for years to come.
And the companies in those countries will grow their
businesses -- and their dividend yields -- right along
with their economies.
Investors looking for that |
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next turbo-charged income
opportunity will find plenty of candidates overseas.
Your investments will have higher starting dividend yields
-- and will have all the potential to grow even higher. What more can
an income investor ask
for?
With all these factors in mind, I launched my premium
newsletter, High-Yield
International, to highlight some of the best income
producers in the world.
In recent issues I've featured an Australian fund with a
current yield of 9.8%. But it gets even better --
this fund has grown its dividend +15% annually over the last eight years. I've also profiled
a Brazilian
utility with a current yield of nearly 7%. And this is
another great dividend grower -- boosting its yield over +20% a year
since it began trading in the U.S. markets.
If you'd like to learn the names of these companies -- plus
receive a steady stream of foreign stocks, funds and other
investing ideas with abnormally high dividend yields each and
every month -- then I'd like to extend you a personal invitation
to try my premium international investing newsletter High-Yield
International.
Visit this link to learn
more.
Thanks for joining me on my search for today's highest-yielding securities!
-- Nick Lanyi
Editor, High-Yield International
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